The central bank kept the benchmark rate at 7.5 percent for the fourth consecutive meeting, delivering a cautious stance amid moderating inflation. Inflation eased from 11.8 percent to 11 percent in February, signaling ongoing price pressures but a softening path ahead.
Looking ahead, the bank projects inflation slipping below 4 percent in the coming months, though it cautions that pressures could rise again. By the end of 2023, the bank sees annual inflation at about 5 to 7 percent, with a target of 4 percent in 2024.
Central Bank Governor Elvira Nabiullina indicated at a post-meeting briefing that it is more likely to raise rates this year than to cut them. “We have signaled that a rate increase is possible if inflationary risks grow. The balance of risks has not improved, which means a substantial rate hike remains a possibility, though not predetermined.”
Such a move would aim to curb inflation while keeping credit access in check. “It is essential that loans remain available, especially long-term financing”, she added. The regulator set its next policy meeting for April 28.
Banking Pressure in the West and Russia
Nabiullina noted that since February 2023 foreign conditions for Russia have loosened, with new restrictions on foreign trade taking effect. Yet the country’s financial system is expected to endure better than Western banks facing instability, including high-profile bankruptcies.
The head of the central bank argued that direct negative impacts on Russia’s financial sector are unlikely because the domestic system is less intertwined with global markets. In this view, a domino effect across global finance is not anticipated.
Monetary transmission, she noted, may still operate indirectly through persistent global inflation, world prices, and export parity dynamics, potentially shaping domestic price trends. At the same time, she pointed to a new factor that introduces greater uncertainty about the global outlook, which could heighten risks to the world economy and even mean a softer global expansion despite strong recent data.
A slower global economy would reduce demand for Russian exports, potentially adding to inflationary pressure. On the other hand, a reopening of China’s economy could lift global activity and support trade, tourism, and investment flows.
For Russia, this environment could bring more opportunities in mutual trade, with new avenues for exports and imports. The tourism sector could see an additional boost, Nabiullina suggested.
The central bank leader stressed that money printing is not a policy tool used in excess, as that would drive inflation higher. Growth in the money supply should align with economic activity and the targeted inflation trajectory, she said.
Central Bank on Developers’ Mortgage Schemes
Regarding various mortgage programs offered by developers, Nabiullina stated that the bank is not satisfied with plans that rely on cash-back or segmented lending schemes. She signaled readiness to take decisive action if needed, emphasizing that the current system is not accepted as is.
A segmented mortgage involves the bank disbursing loans to buyers of homes under construction and transferring funds to the developer as work progresses. Cash-back mortgages, replacing near-zero rate programs, require buyers to place at least a 15 percent down payment. The bank noted that registration with the housing registrar and escrow arrangements can trigger partial refunds, but expressed concerns about the overall structure and incentives.
The Central Bank also highlighted a rise in loans to borrowers with high debt burdens and a higher share of low-down-payment mortgages, flagging those trends as potentially risky. Nabiullina stressed that reserves should not be earmarked solely for mortgage support; doing so could fuel bubbles while offering social protection in downstream effects.
She warned that if these schemes proliferate, the bank would push for legislative changes to constrain them and prevent harm to borrowers. The regulator pointed out that a Ministry of Construction program offering developer-backed mortgages with favorable terms was rejected due to persistent fundamental flaws, including price markups that benefit none but the developers. Investors or buyers could face a weaker primary market when housing costs adjust, which the bank views as unsustainable. Nabiullina concluded that a viable option would require strict legal boundaries to avoid unfair sales and misrepresentation for buyers.